Tuesday, May 29, 2012

That's what's so frustrating about the discussion surrounding bank "failure" - a $15 trillion stock market can lose 20% ($3 trillion) and it's just a run-of-the-mill bear market. But let bank bondholders face a similar loss, and the banks cry that the whole financial system will go down. We'll finally get some economic traction when global leaders have the sense to take bloated, mismanaged banks into receivership, mark down the assets to their actual value, restructure the repayment terms with homeowners and other borrowers, haircut the liabilities enough to make the resulting entities solvent, and then return them to the private market under a regulatory structure that splits traditional lending from securities trading. That prospect is getting closer.

Friday, May 18, 2012

WARNING: WHAT FOLLOWS IS RESEARCH, NOT INVESTMENT ADVICE. YOU INVEST AT YOUR OWN RISK, UNLIKE THE WALL STREET BANKS, WHO ALSO INVEST AT YOUR RISK.

I have previously shown how the current situation resembles that of 1972-1973: depressed Michigan sentiment, my animal spirits metric climbing above zero. If we follow the early ‘Seventies pattern, we are on the cusp of a severe recession (actually, I believe we will have to start calling it a depression in polite society if even the mal-measured unemployment rate climbs above ten percent and lingers there).

So it was of some interest to me to update my implementation of the venerable Coppock curve, a long-term stock market momentum indicator that gives a reliable buy signal when it turns up from a negative reading (the one false positive having been in the early ‘Oh-Ohs). In this light the stock market also resembles the early ‘Seventies situation, even to exhibiting a very well formed “killer wave,” a descent from a top with a hitch on the way down, very much as it did in the early ‘Seventies, and before that, coming off the major late ‘Sixties top. Here are the charts.

Scaled the same way, side by side (note the higher highs and the lower lows in the recent period):

Friday, May 11, 2012

Based on my judgmental forecast of the unemployment rate, which I expect to break below 8.0 percent just in time for the election, then to shoot up as the global slowdown catches up with the US. In 2013 and 2014 the US will undeniably be in depression, in this view. The next slump will be only about a year long (meaning the phase of negative aggregate growth) but will conclude in 2014 with unemployment at depression levels, but nowhere near as bad as it is in some parts of Europe. The latter part of the decade will present the most fertile breeding ground for fascist extremism in a century, not only in the failed state of Europe but in America.

I am basing my forecast in part on the purely technical observation that previous “global” peaks in unemployment have come at the end of three local peaks on the way up.

As I’ve been saying for years, any fiscal stimulus will go to the 1 percent: “The American income distribution is like a Detroit V8 firing on one cylinder: it doesn’t matter how much you step on the gas, only one cylinder going to fire” (source, March 2011).

In the 2010 recovery, 93 percent of the gains were captured by the top 1 percent. That’s because top incomes grew 11.6 percent in 2010, while the incomes of the 99 percent increased only 0.2 percent. (source)

It when we know facts like this that Larry Summers’ obtuseness in recommending more debt and more fiscal stimulus becomes truly breathtaking. Well, at least we know Jamie Dimon won’t be becoming Treasury secretary now, after his bank’s trading blooper.

The problem is the distribution, people. Take away from the military industrial security complex and give to infrastructure workfare and education, and for Christ’s sake, raise taxes on the rich. And make the banks write down or charge off debts that won’t be repaid.

When things go wrong, people get mad, and when people get mad, they make mistakes.

I just watched Bill Moyers on public television. He showed a bunch of people saying they are mad at corporations, that corporations are looting the common people.

But corporations are just a form of social organization that is very good at raising capital and producing goods and services.

It is the ruling class who are looting the common people, a ruling class of interlocking boards and CEOs and lobbyists and Congressmen and just plain greedy people who have forgotten to reward the people who are doing the work because they along with almost everyone else in America bought into the notion that greed is good and that it’s okay to take more than your share. I want it all now. It’s time for you to get into me.

The problem is the ruling class and the American social values that have until recently validated the behavior of our ruling class. Greed has been good since Ronald Reagan’s presidency, approximately. We let them get away with it.

The solution is to bring the people in the ruling class down to earth by raising marginal tax rates to at least 75 percent on income over one million dollars. Take the fun out of expropriating the employees and shareholders of their corporations, let the rich bear their fair share of cleaning up the fiscal mess Wall Street created (whether they’re on Wall Street or not).

If they want to take their money out of the country, they probably can, but the IRS is making it more and more difficult. If they want to leave, let them go, it’s still a free country, relatively speaking.

The Tea Party movement and the Republican party are sucker’s games, talking about getting government off people’s backs, when all they’re really talking about is protecting the highly unequal status quo and keeping taxes low for rich people. […] (source)

I get annoyed hearing the fallacious statement that labor force participation is declining because the baby boom is retiring. The baby boom is largely unprepared for retirement, and their participation rates have been increasing since 2000, as can be seen here.

Monday, May 7, 2012

American real GDP has actually grown faster when marginal tax rates have been much higher than they are now. That was back when we had something resembling a viable social contract.

It’s always good to recall how economic inequality correlates with many social pathologies by watching Wilkinson’s ted.org presentation again, with particular attention to his discussion of the Swedish case.

Market capitalism and globalization has fractured societies around the world, separating the global corporate elite from the common people. In my view, the countries that pull together the fastest will win in the long run because they will be happier and healthier and very possibly more productive.

Tuesday, May 1, 2012

Satyajit Das gets the last word on Frontline’s “Money, Power and Wall Street” (full series) when he says the reason there has been no reform is that (other than that Barry and Timmy are timid little Ford Foundation brats) it’s difficult to change gods, and Finance is our god.

Even as the new World Trade Center tower goes up, a cathedral to the god of our age….